FAR EASTERN UNIVERSITY

INSTITUTEOF ACCOUNTS, BUSINESS AND FINANCE

Department of Accountancy & Internal Auditing

AUDITING PROBLEMS
Second Semester SY 2020-2021
AUDIT OF INVENTORIES AND RELATED ACCOUNTS
Name Date
(Family Name) (First Name) (Middle Name) Section
Professor Day/Time
Stud. No. Score /56 items
Room Rating

PROBLEMS (30 POINTS)

PROBLEM 1:
The following accounts were included in the unadjusted trial balance of Bani Company as of December 31, 2020:

Cash 481,600
Accounts Receivable 1,127,000
Inventory 3,025,000
Accounts Payable 2,100,500
Accrued Expenses 215,500

During your audit, you noted that Bani held its cash books open after year-end. In addition, your audit revealed the
following:

1. Receipts for January 2021 of P327,300 were recorded in the December 2020 cash receipts book. The receipts of
P180,050 represent cash sales and P 147,250 represent collections from customers, net of 5% cash discounts.
2. Accounts payable of P 186,200 was paid in January 2021. The payments, on which discounts of P6,200 were
taken, were included in the December 2020 check register.
3. Merchandise inventory is valued at P3,025,000 prior to any adjustments. The following information has been found
relating to certain inventory transactions.
A. Goods valued at P 137,500 are on consignment with a customer. These goods are not included in the
inventory figure.
B. Goods costing P 108,750 were received from a vendor on January 4, 2021. The related invoice was received
and recorded on January 6, 2021. The goods were shipped on December 31, 2020, terms FOB shipping point.
C. Goods costing P 318,750 were shipped on December 31, 2020 and were delivered to the customer on January
3, 2021. The terms of the invoice were FOB shipping point. The goods were included in the 2020ending
inventory even though the sale was recorded in 2020.
D. A P 91,000 shipment of goods to a customer on December 30, terms FOB destination are not included in the
year-end inventory. The goods cost P 65,000 and were delivered to the customer on January 3, 2021. The
sale was properly recorded in 2021.
E. The invoice for goods costing P 87,500 was received and recorded as a purchase on December 31, 2020.
The related goods shipped FOB destination were received on January 4, 2021, and thus were not included in
the physical inventory.
F. Goods valued at P 306,400 are on consignment from a vendor. These goods are not included in the physical
inventory.

Based on the above and the result of your audit, determine the adjusted balances of the following as of December 31,
2020:

Question 1: Cash

Question 2: Accounts Receivable

Question 3: Inventory

Question 4: Accounts Payable

Question 5: Current ratio

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PROBLEM 2:
Dasol Factory started operations in 2020. Dasol manufactures bath towels. 60% of the production are “Class A” which
sell for P500 per dozen and 40% are “Class B” which sell for P250 per dozen. During 2020, 6,000 dozens were
produced at an average cost of P360 per dozen. The inventory at the end of the year was as follows:

220 dozens “Class A” @ P360 79,200

300 dozens “Class B” @ P360 108,000
187,200

Using the relative sales value method, which management considers as a more equitable basis of cost distribution,
answer the following:

Question 6:
How much of the total cost should be allocated to “Class A”?

Question 7:
How much of the total cost should be allocated to “Class B”?

Question 8:
How much is the value of inventory as of December 31, 2020?

Question 9:
How much is the cost of sales for the year 2020?

Question 10:
How much is the gross profit for the year 2020?

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MC PROBLEM 3:
Exodus Corporation was organized on January 1, 2019. On December 31, 2020, the entity lost most of its inventory in
a warehouse fire just before the year-end count of inventory was to take place. Data from the records disclosed the
following:

2019 2020
January 1 inventory 0 1,020,000
Purchases 4,300,000 3,460,000
Purchase returns and allowances 230,600 323,000
Sales 3,940,000 4,180,000
Sales returns and allowances 80,000 100,000

On January 1, 2020, the company’s pricing policy was changed so that the gross profit rate would be three percentage
points higher than the one earned in 2019.

Salvaged undamaged merchandise was marked to sell at P 120,000 while damaged merchandise marked to sell at P
80,000 had an estimated realizable value of P 18,000.

Based on the above data, determine the following:

Question 11:
Gross profit rate in 2019.

Question 12:
Gross profit rate in 2020:

Question 13:
Cost of sales for the year ended December 31, 2020

Question 14:
Inventory, December 31, 2020, before the fire

Question 15:
Inventory loss due to fire